PREZZAGGIO DI OBBLIGAZIONI CONVERTIBILI OBBLIGATORIE TRAMITE VWAP

This thesis presents a comprehensive analysis and enhancement of pricing mandatory convertible bonds (MCBs) with Time-Weighted Average Price (TWAP) features. Traditional models for MCB valuation often overlook key aspects such as the averaging mechanism for conversion ratios and the impact of implied volatility and dividends, leading to potential pricing inaccuracies. To address these limitations, this research extends the pricing model proposed by Ammann et al. (2006) by incorporating several critical enhancements. Firstly, a robust averaging mechanism is introduced, utilizing the stock's closing prices over a specified period before maturity to more accurately determine the conversion ratio. Secondly, the traditional continuous dividend yield assumption is replaced with forward prices derived from option prices, providing a more precise estimation of future dividend yields. Thirdly, the model incorporates implied volatility instead of historical volatility, capturing market expectations and forward-looking information more effectively. The methodology involves the development of three distinct pricing engines: an analytic Ammann-based engine, a Monte Carlo simulation engine, and a geometric mean pricing engine. These engines are rigorously tested using a dataset of MCBs traded in the U.S. market, covering various sectors and issuance periods. The empirical results demonstrate that the enhanced model significantly improves the accuracy and robustness of MCB valuation. This provides valuable insights for market participants involved in the issuance, trading, and risk management of these financial instruments. The findings underscore the importance of incorporating forward-looking measures and robust averaging mechanisms in MCB pricing models. The thesis concludes with recommendations for future research directions, suggesting further refinements and potential applications of the proposed valuation framework. The advancements presented in this research contribute to the field of financial modeling and offer practical tools for improving the valuation and management of mandatory convertible bonds.